Tom

I have a client who is hoping their audit requirement is eliminated for 2021. The active/eligible participants plus inactive with a plan balance as of 1/1/2021 are 98. A fixed match true-up was calculated and funded in 2021 for those eligible in 2020. Included in the true-up were 3 participants who terminated in 2020 and had no plan balance as of 1/1/2021. So their plan balance was zero on 1/1/2021, then the small match true-up was deposited in mid-2021 and then they had that paid out as well. So they had no plan balance as of 1/1/2021 unless you count their true-up A/R. If we count them as participants with a balance as of 1/1/2021, then the count is 101. The plan reports on the 5500 and audit on a cash basis. I suspect everyone will say get the audit to be sure and that is what I wil tell them. I did look at 1/1/2022 as well which is clearly 98 and so 2021 will be the last year (for now) which I guess is the silver lining. Just curious about comments at this point. I will tell the client to get the audit. Tom

Add on to my question - As for the notification requirement, can a separate notification be provided to each match allocation group? The client would not want to provide a notification to everyone indicating the match formula applied to each of the employee groups. And do you think it is possible to match individuals and not groups like a class-allocated PS provision - each person is an match allocation class? This assume they are NHCEs. This would be very limited such as one deserving person getting a higher match than everyone else, or does it have to meet a business classification such as job description, location, division, etc?

All our plans with discretionary match are "rigid". Now a client wants to apply different match formulas to different employee groups. HCEs will get the lowest or no match so testing is likely not a problem. So we will amend the plan to include a Flexible Discretionary Match. The BPD (FIS-PPD) essentially says for the Flexible Discretionary Match that the Employer retains discretion over the formula(s) including the rate, the limit on deferrals subject to match, the match limit, the categories of employees who will receive the match, and the matching time period....except as otherwise elected in the Adoption Agreement (sounds like including specific provisions is optional). I know about the notification requirement. This client employer will declare and fund the match after the end of the year. My question is - does the plan document require a description of the employee allocation groups, or are the groups totally flexible and discretionary from year to year. (I realize ACP, discrim and coverage testing must pass.) It seems the plan document does not have to say anything specific - no limit on deferrals matched, no match rate, no period and no mention of employee group descriptions. Is this right? Thank you! Tom

This plan is terminating and there are several DB participants who will not complete their distribution forms. It is a PBGC plan. Two participants are still employed and so I think they can be coerced. The other terminated a year ago. All have $5,000 to $7500 balances. I'm told by the actuary that no insurance company will quote on something that small and that completing the form is the only option. Well if they won't, then what? We are told their balances may not be transferred to IRA, the PBGC or state unclaimed funds. The plan sponsor was acquired and the acquiring company has a 401(k) plan, but certainly spousal consent would be needed to transfer the funds. About all I could tell the sponsor to do was "threaten" in a nice way the two still employed to fill out their forms and go to the home of the terminated participant and be a nuisance. Comments? Thank you, Tom

Thank you - good comment about vesting. Hadn't thought of that.

Thanks Lou. The amendment was done prospectively on time. But thank you for commenting that eligibility is not a protected benefit. That confirms my thinking.

Can a plan be amended say effective 1/1/2022 to exclude employees who previously met eligible and were covered under the plan? Specifically the employer wants to exclude a defined class of employees, some of which worked 1000 hours in a past year and became eligible in a prior year. Now the employer wants this group excluded even if they previously met plan entry. I'm thinking this is ok. Coverage testing of course would have to be passed. I believe anyone who EVER worked 1000 hours even if many years ago would be in the testing group. That is unfortunate because they have many employees who worked 1000 hours in one year many years ago but I believe that will cause them to be in the coverate testing group. Thank you in advance for your comments. Tom

A client opened a new 401(k) plan 1/1/2021. The plan has immediate eligibility for those employed as of 1/1/2021 but excludes part-time/seasonal/temporary (those scheduled to work <1000 hours). I am going to ask them to confirm who they determined met eligibility and provided enrollment material. As TPA we can't make that determination not knowing expected hours. Probably an easy question - what about someone who is not scheduled to work 1000 hours in 2021 but has worked 1000 hours in a prior year? I think they should have been enrolled as all service would have to be considered. Normally any new plan without the part-time exclusion would include prior year 1000 hour employees as eligible so I believe I have my answer. Thanks Tom

Question - a plan is class-allocated for 2020 and has allocation conditions (1000 hours and last day of the year employment) for profit sharing. That obviously means someone who did not meet the allocation conditions will not receive profit sharing contribution. But is the reverse true? Does someone who did meet the allocation conditions have to receive a profit sharing contribution? Seems the employer could choose not to contribute to that "class" (one employee in the class.) In other words, the class allocation funding decision comes first. The plan is not top-heavy and includes a safe harbor match. The reason I am asking - the profit sharing decision is being made now for 2020 and several employees who met allocation conditions for PS for 2020 terminated employment in 2021. Comments? And thank you! (We are removing allocation conditions and pretty much making all plans class-allocated with Cycle 3.) Tom

Thanks all - good points. And yes I will have the plan sponsor confirm and approve who the children are.

Participant dies and has no designation of beneficiary form. The participant's spouse died 15 years ago. The plan document provides for default beneficiaries as first spouse, if no spouse, then children equally. There are 2 children. I believe the 2 adult children are to both receive 50% of the participant's account. The plan sponsors asked if this should go through probate. It never entered my mind that this would go through probate since there are living children. I'm not a lawyer. I started to doubt myself. I did a little research and it does appear that this would not go through probate. It's not a large amount but still - need to be sure. The plan administrator (doctor) would make the decision on this - but of course looks to us as TPA to tell them what to do. Comments? Thank you in advance.

Like most TPAs we have a combination of record keeping platforms and brokerage account clients. Distributions for record keeping platform plans are certainly easier. brokerage accounts and DB plans not so much. Is anyone willing to share some processing tips? The force out process is VERY time intensive - identify, send communication with forms, returned to sender, use locator, send again, and then when no response, send funds to IRA or issue check to last known address, and then deal with uncashed checks. I'd like to get the distribution form and tax notice for all plans into the hands of the client (and online instructions when applicable) so plan sponsor can hand out at last day of employment. Therefore, the notification has gone out and they can be forced out say in 60 days to be safe. Still could be lots of follow up. We do almost all the work here but I'd like to shift as much work to the plan sponsors as possible. Reason - almost can't charge enough for handling distributions. We also issue distribution checks, deposit taxes and prepare 1099-Rs for those not on record keeping platforms. Tom

Employer has had 6-month wait to enter the plan, no hour requirement, just elapsed time. This pulled in several part-time employees who work <1000 hours. They have no balance in the plan. The participant count went over 120 as of 1/1/2020 and so will be audited for 2020. The plan was been amended to exclude part-time, seasonal, temporary defined as those scheduled to work <1000 hours effective 1/1/2021. The intent then is to exclude these employees prospectively from participation as of 1/1/2021 - no longer covered under the plan and thus not included in the participant count. Example: an employee who always worked <1000 hours was eligible in 2020 and has no plan balance. The 2021 amendment is intended to exclude this employee from participation in the plan effective 1/1/2021. I think this is ok. Comments? Thanks in advance.

Jack and Jill are a married couple who both own 50% of company A. Their adult son works for them and is considered a 100% shareholder through family attribution. Son owns Company B 100%. Company A and B have completely unrelated services and clients. Are Company A and Company B a controlled group? Or is this double attribution? Thank you, Tom

We are planning to restate for cycle 3 plans in the process of terminating. so there are 3 kinds of terminating plans. Curious as to thoughts about this. 1) Plan termination amendment prior to 8/1/2020 but funds still in the plan after that date. 2) Plan termination amendment after 8/1/2020 and funds paid out in fall of 2020. 3) Plan termination amendment after 8/1/2020 and funds not out of the plan until January 2021. Thank you for your comments.

For our plans that have the "maybe" safe harbor, we have always provided the client wanting safe harbor treatment the notice saying they will fund the 3%, the maybe notice for next year and the amendment 30-90 days prior to the end of the year. I assume that process does not change with all the new Safe harbor rules. I know there are new rules about declaring safe harbor treatment into the next year. I'm concerned about what needs to be done this year for these "maybe" safe harbor plans. Can it be simplified such as - ignore this year end and provide a notice next year up to Nov 30 for 2020?

Anyone have opinion about filing Schedule D for record keeper plans such as - Hancock, American Funds RKD and Plan Premier, Ascensus, Principal, Nationwide, Empower, Lincoln? We generally complete this but it seems like a waste of time as most information is on Schedule H.

I've not seen anything regarding extending grace perionds for participant loan to prevent defaulting. Has anyone seen anything? I have a financial advisor telling me that defaults will not happen.

We do not work with 457 plans but a financial advisor who refers to us asked me about a 457 plan that they took over management of - specifically what is the plan document restatement cycle like for these plans? Was there an April 2016 PPA deadline like 401(k) plans? Or something else? When was the last required restatement deadline? Thank you, Tom

A large payroll company (10,000+ payroll clients) marked box 13 with an X for a 401(k) participant who made no elective deferrals to the plan nor receved an employer contribution for 2019. There is no DB plan. So the employee received no employee or employer contribution into the plan account in 2019 nor was there any employer accrued contribution 2019. The employee was planning to do a deductible max IRA. the employer specifially told them - no X for this person. The Payroll company said because there were 401(k) loan payments they had to mark Box 13 with an X. That has to be wrong in my opinion. I gave them the IRS instructions on this with examples of no employee nor employer contribution but it doesn't say anything about loan payments - probably didn't think it needed to! Comments?

Hypothetical: Non-5% owner is age 75 and rolls 100% of balance to IRA in May 2019. Terminates employment in August 2019. It seems there may be an RMD requirement. But if he had not terminated employment there would be none. Another example: Non-5% owner 70 years old retires in April 2019. He will turn 70 1/2 in November 2019. He requests 100% rollover in July. I don't believe there is any question - he must take RMD and rollover the balance in July even thoguh not yet 70 1/2.

We have a client who is sole owner of a Sub-S LLC. She has no employees at this point and has K and DB plans. She informed us she is going to hire a personal assistant who will work for the business but also do domestic work in home - likely split about 50/50 and will work over 1000 hours between business and domestic. The problem is the client has relatively low income but makes singificant K/DB contributions. She does not want to cover the employee. The employee is only 4 years younger which is not helpful for the DB plan. Fortunately the employee will not be eligible until 1/1/2021 but we have been asked to advise the client as to coverage. Is a sole-owner business required to be aggregated with that owner's domestic employee? Likely the IRS would say yes. Any comments?

Group Health Insurance - assume small employer not required to offer health insurance. If it does, is it allowable to require the employees to pay say 25% but provide the owner 100% employer-provided coverage 100% - presumably outside a cafeteria plan? Would the answer be different for a large employer over 50? Cafeteria Testing - when health insurance plan are offered by employers, they are almost always provided under a cafeteria plan so that the portion paid by employees can be withheld on a pre-tax basis. My question is - what is included in the 25% concentration test? I'm reading that an "employer contribution" must be included. Is an "employer contribution" an actual dollar amount funded to the cafeteria plan to help pay for selected benefits? Or could it also mean the premium portion paid by the employer (presumed to be outside the cafeteria plan?) Thank you Tom

Medical office has safe harbor match plan (no profit sharing funding). Plan excludes HCEs from the Safe harbor match as there are a number of high-paid para-professionals. Plan is not top heavy at this point. But when it does become top heavy, certainly the non-key HCEs will need to receive 3% (since the key owners are deferring the max.) And I assume ONLY the non-key HCEs who are excluded from the safe harbor match need to get the top heavy contribution (whether they deferred or not). The top heavy would certainly not have to go to all non-key. Comments? Thanks

This is an asset sale, termination of business activity, all employees terminated, and yes the plan is frozen and terminating as distributions to participants is underway. So I assume - yes 100% vested. Tom